Bankruptcy Truth or Consequences: The Department of Justice Really Does Pay Attention To Bankruptcy Schedules

22 Sep Bankruptcy Truth or Consequences: The Department of Justice Really Does Pay Attention To Bankruptcy Schedules

alcatraz prisonPeople lie. People lie all the time — about their weight, about their size in clothing, about their age. Little white lies that don’t hurt anyone. And then there are the big lies. And one of the places where folks sometimes tell lies is in U.S. Bankruptcy Court. Who will know? Who cares?

On my reception area wall stapled to the wall is a newsclipping about debtors who filed bankruptcy and didn’t care about the lies on their bankruptcy schedules. The couple gave false information about their property, omitting that they owned a couple of Harley Davidsons and bank accounts with a lot of money in those accounts. The bankruptcy process has an observer/prosecutor in the U.S. Trustee’s Office. The U.S. Trustee Office is a branch of the Department of Justice and takes their job very seriously. When the U.S. Trustee found out (and they mostly do find out) about those assets, the couple faced both criminal charges and a lawsuit seeking that none of their debts would be discharged. The consequences of lying to a federal court for that couple? Prison.

That newsclipping is stapled to the wall, not in a frame, not made pretty, not meant to look like office art or décor. I want folks to notice it — an out of place item in the reception area that is decorated with tropical prints and Hawaiian dancer figurines. I want folks to notice it so that when someone asks me: “How will anyone know if I don’t put down that I own a couple extra guns? The guns aren’t registered to me!”, I can point to that article and remind them that the papers filed with the court are sworn statements. The debtor, not their attorney, swears that the assets are all of the assets, that the debts are all of the debts, that the creditors are all of the creditors and that the income/expenses are accurate. The bankruptcy debtor swears under penalty of perjury.

Why would that matter if the attorney doesn’t swear? When first sworn in as an attorney, an attorney swears an oath–to maintain client confidences but also swears to not mislead the court. If an attorney finds out that the client/debtor has lied, that creates an insurmountable conflict of interest between those two types of oaths. An attorney will not knowingly file false papers on the client’s behalf but also has a duty as an officer of the court to not allow the court to be mislead. The ethical dilemma creates the conflict.

Another more public demonstration of the oversight of the U.S. Trustee’s office is revealed in the Giudici case. Back in 2010, this author discussed the Joe and Teresa Giudici bankruptcy filing and Teresa Giudici’s notoriety based on her appearance on a reality television show: The Real Housewives of New Jersey. The U.S. Trustee discovered that the Giudicis had provided false information on their bankruptcy schedules. The U.S. Trustee filed a lawsuit to have their debts declared non-dischargeable. The Giudicis ultimately settled and accepted a stipulated judgment and agreed to what the U.S. Trustee was asking–that their debts not be discharged.

Attorneys across the country were stunned that this stipulation seemed to be the end of that issue back in 2011. The reality television show continued and the Giudicis seemed to be thriving post-settlement. Teresa Giudici’s business interests expanded and money seemed to be rolling back in for them. The couple likely thought that the bankruptcy attempt was behind them and they could move on with their lives.

But, the U.S. Trustee and the Department of Justice were not finished with the Giudicis. Recently, the Department of Justice filed criminal charges against both Giudicis, alleging fraud, tax evasion and perjury. The stakes just got very high as there is significant prison time if they are found guilty. The Department of Justice used evidence in civil cases against the couple to allege mortgage fraud and tax fraud and in addition, the fraudulent statements in their bankruptcy filing. It may have taken the Department of Justice a long time to bring the charges but remember…there are always consequences for not telling the truth.


photo: Karen Oakes (c) 2009

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I'm a consumer protection lawyer in Oregon, working with people in Klamath; Lake; Jackson; Josephine; Curry; and Deschutes County. I speak regularly on bankruptcy and consumer protection issues nationwide.
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